N.California 50/50 partners couple rentals & assets protection

12 Replies

Hello,

I and my partner have purchased 4 rental properties 50/50% in Northern California, I manage them while he does repairs, we also live in California.

We have landlord insurance and hefty Umbrellas on top of it.

The rentals purchased with cash, I was looking into setting proper business formation since day one and couldn't find a good structure to protect the investment. From reading many RE lawyers blogs and podcasts the top two structures it looks like will get the most protections are bellow:

Option 1- Setting land trust for 4 properties with trustee out of state with P.O. Box and different last name ( say a friend or family member) and than set the LLC with both of us limited partners and Land trust as a general partner

Option 2- Setting Wyoming LP that has general partner LLC and limited party us , and LLC has general partner itself and limited partners us.

I know it sounds a bit complicated, but that what I've extracted from vast of the recommendations so far.

Other options had it's own problems as well , like : 

Series LLC are not yet supported in CA

Having each property in separate LLC is financially tough

Also my partner has his own business, and I have concerns if say he will get sued for something else than our business and having us partners under LLC probably can impact me as well?

Looking forward for your comments and suggestions.

If anyone familiar with a reputable assets orientation attorney around Sacramento, someone who know that side of real estate not only from the law school but actually defended clients and won cases? 

You are taking the right approach. Land trusts are very expensive and scary too.  I have 2 Attorney’s that may be able to give you some sound advice. You may pm me.

Originally posted by @Jo-Ann Lapin :

You are taking the right approach. Land trusts are very expensive and scary too.  I have 2 Attorney’s that may be able to give you some sound advice. You may pm me.

 Thanks Jo-Ann, but I actually see the land trust cost is not that high if done with right professional.
I'm more curious what other CA investors do to protect their assets beyond incurance and Umbrellas.

@Oleg P. , just curious where you invested in Northern California.

I just spoke to a first am title rep who gave me a cost break down for the set up and ongoing cost for the land trust . It was very high . So not sure who else is out there to perform the duties of the properties and at what cost. Let me know. Always good to learn. The investors I work with get loads of insurance and put properties into LLC etc . Bottom line nothing is full proof.

Originally posted by @Logan Allec :

@Oleg P., just curious where you invested in Northern California.

 Sacramento region, single family homes

Had called a RE attorney and talked to them about it.
He offers LLC in CA, either my share only or together with a partner.
Some of the cons : 

LLC with partner -still liable for his actions/debs/lawsuits

LLC alone - not a strong entity in CA

Asked about structured LLC with say Wyoming LLC holding CA LLC m he says in CA it won't probably hold against a lawsuit well anyway.

 No perfect protection...

@Oleg P. Just curious, did you decide on a direction?

Have you looked into a Delaware statutory trust? I just set one up?

Originally posted by @Jake Weir :

Oleg P. Just curious, did you decide on a direction?

Well, still haven't set it. 

So far. I've looked into CorporateDirect and also talked to 2 local attorneys, practicing assets protection.

While CorporateDirect reps advice on having 2 level LLC with main one in Wyoming , the local 2 said that CA LLC is enough.

Other caveats, as we know are 800$ CA Franchise tax per LLC...it is getting expensive putting each property under single LLC, tending to go to a single LLC holding multiplied property, compromising on layer protection at some level. 

Other concern is having single LLC for my 50% or together with a partner, having us both under same LLC will allow cost splitting, however the concern will be with regards to other party outside liabilities.

Say, one partner get a judgment for entire assets, which will include LLC .

We do hold title as 50% interest, so it will make it easier to get out of the problem, but still can be a hassle.

Looks like single LLC on my 50% is the better way here, with annual 800$ on me only.

As far as a structuring cost to set LLC using lawyer, the quotes I got so far were :

Around 1500$ for single 

Around 2500$ for 2 members

I know there are free online resources to set LLC with much less, however the operation agreement will need to be pretty custom in case I go for 2 members LLC with my partner, since we have to capture different things in it,

Hope it helps.

Would be great if more folk can share their approach?

Originally posted by @Alok Jain :

Have you looked into a Delaware statutory trust? I just set one up?

 No, wasn't recommended to look at one, haven't seen much mentioning of it from other. 

Is it any better than LLC?

From the other attorneys consultation, they don't recommend looking too much into other states structures, as there is a big concern that business operating in California will be still liable under California laws, making extra layer of protection meaningless.

@Oleg P. , When I do a joint venture I do a single LLC with the other party. I usually have my main LLC as the 1/2 owner, but sometimes do it personally. In WY you are not liable for what the other partner in the LLC personally, but the LLC is liable for the actions of either owner. When it comes to personal liability, in WY they cannot take the partner's share of ownership in the LLC for his personal debts, they can only do a charging order. One caveat is that when you personally work on a property you can in certain circumstances lose the LLC protection. For example if your partner works on the furnace and messes up the exhaust stack and someone dies from carbon monoxide poisoning he will probably be sued personally as well as the LLC being sued. The LLC will not limit the action he took personally. In other words LLCs have much stronger protections if you are not personally working on them. Keep in mind CA law may be different from what I said, as honestly CA is dramatically different from that of most states. Best of luck

@Jerry W.

Very good points, thank you.

I was told that Wyoming's LLC is one of the strongest structures around, also Nevada was mentioned.

California's LLC mentioned as one of the weakest LLC structures, however it is still a layer of protection to consider along with Umbrella insurance and of course managing properly your investments and personal life lowering liabilities .

Definitely no 100% protection on investment from liability point of view :-((((

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